Dynamic competition in technological investments: An empirical examination of the LCD panel industry

When are technological laggards more likely to try to catch up with leaders? We offer empirical evidence on firm-level data of plant investments in the TFT-LCD panel industry, where technological competition has been intense and dynamic. We find that the followers' level of technology has a non-monotonic effect on technology-improving investments, with intermediate followers the most apt to invest in catch-ups. This result is a puzzle given the existing theory on technology race. We also find that followers' catch-up investments increase with the capacity of the leader that employs the state-of-the-art technology. These results are robust to variations in specification and alternative accounts of effects. We discuss our findings and contributions in light of the technology race literature.

Research highlights► We offer evidence on dynamic technology competition in the TFT-LCD panel industry. ► Followers with medium technology indexes are most apt to make catchup investments. ► This supports action-reaction rather than increasing dominance as race pattern. ► Catchup investments also increase with industry's cutting-edge technology capacity. ► This finding confirms that followers strive to catch up not to fall too far behind.